Correlation Between Molina Healthcare and Microsoft

Can any of the company-specific risk be diversified away by investing in both Molina Healthcare and Microsoft at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Molina Healthcare and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Molina Healthcare and Microsoft, you can compare the effects of market volatilities on Molina Healthcare and Microsoft and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Molina Healthcare with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Molina Healthcare and Microsoft.

Diversification Opportunities for Molina Healthcare and Microsoft

-0.34

Correlation Coefficient

Molina Healthcare  Microsoft

Very good diversification

The 3 months correlation between Molina and Microsoft is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Molina Healthcare and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Molina Healthcare is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Molina Healthcare are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Molina Healthcare i.e., Molina Healthcare and Microsoft go up and down completely randomly.

Pair Corralation between Molina Healthcare and Microsoft

Assuming the 90 days trading horizon Molina Healthcare is expected to generate 3.74 times less return on investment than Microsoft. In addition to that, Molina Healthcare is 1.58 times more volatile than Microsoft. It trades about 0.01 of its total potential returns per unit of risk. Microsoft is currently generating about 0.08 per unit of volatility. If you would invest  23,503  in Microsoft on October 24, 2024 and sell it today you would earn a total of  17,507  from holding Microsoft or generate 74.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Molina Healthcare  vs.  Microsoft

Molina Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Molina Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Microsoft

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Molina Healthcare and Microsoft

The main advantage of trading using opposite Molina Healthcare and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Molina Healthcare position performs unexpectedly, Microsoft can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Microsoft will offset losses from the drop in Microsoft's long position.

The idea behind Molina Healthcare and Microsoft pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.